In 1989 the Central Agency for the Equal Distribution of Burdens Law (L.141/1989) was enacted. The primary purpose of the Central Agency is to undertake actions to achieve the equal distribution of the burdens resulting from the Turkish invasion and occupation.
As per the provisions of amending Law L.12/2021, applicable as of 22 February 2021 (and up until 18 November 2022 when amending Law L172/2022 was enacted), a levy is imposed in the case of transferring shares in a company which directly or indirectly owns immovable property in Cyprus, on the condition that the buyer acquires the control of the company. Such a levy is imposed at the rate of 0,4% on the value of the property that is directly or indirectly transferred, as per the latest general valuation carried out by the Department of Land and Surveys.
As per the provisions of L.172/2022 applicable as of 18 November 2022, such a levy continues to be imposed, at the rate of 0,4% on the value of the property as per the latest general valuation made by the Department of Land and Surveys, for the relevant immovable property which is directly or indirectly owned by the transferring company, however, the following cases are exempted from the imposition of the levy:
- Transfer of shares in a company that is listed in any recognised stock exchange;
- Transfer of shares as part of an approved reorganisation; and
- Transfer of shares as part of restructuring of loans (debt-for-asset swap transaction).
It should be noted that as per Circular 2/2023 issued by the Tax Department on 31 March 2023, it has been inter alia clarified, that the following cases are exempted from the levy as of 22 February 2021:
- The transfer of shares in a company that is listed in any recognised stock exchange; and
- Transfer of shares as part of an approved reorganisation.
It is relevant to note that amending Law L.172/2022 has assigned collection rights and authority for collection of this levy to the Commissioner of Taxation, and consequently as of November 2022, such levy is being collected by the Tax Department.
The Tax Department issued an announcement on 21 November 2022 stating that for all transactions executed during the period 22 February 2021 to 18 November 2022 (for which the levy was not collected), a reasonable period of time shall be granted to the taxpayers for the settlement of the relevant obligation without the imposition of any interest and penalty charges.
On 1 September 2023, the Tax Department issued another announcement on the matter, informing taxpayers that, following the decision to grant a reasonable period of time for the settlement of the obligation without the imposition of any interest and penalty charges, it has now sent letters to affected taxpayers (who during the period 22 February 2021 to 18 November 2022 have proceeded with the transfer of shares of companies which directly or indirectly own an immovable property in Cyprus) requesting them to proceed as follows:
- Submit to the Tax Department all of the relevant documentation/information in relation to the transaction (already implemented) by 31 October 2023; and
- Proceed with the payment of the relevant levy by 31 December 2023. After 31 December 2023, the Tax Department will proceed with the imposition of (a) interest, (b) a penalty of 5% for payments to be made until 31 January 2024 and (c) an additional 5% penalty for payments to be made as of 1 February 2024.
Furthermore, the announcement states that taxpayers which may not receive the relevant letters from the Tax Department (but are required to proceed with the payment of the levy and Capital Gains Tax) are still obliged to submit to the Tax Department the relevant Tax Declaration Form for transferring of shares (i.e., Form T.D.402), and proceed with the payment of the levy and Capital Gains Tax.
It should be noted that no interest and penalties are imposed for any payments made up until 31 December 2023 in relation to this levy.
Regarding the Capital Gains Tax, interest and penalties are imposed one month after the date of sale. In cases where the required T.D.402 Form is not submitted to the Tax Department within one month from the date of sale, administrative fines are also imposed.
EY Cyprus remains at your disposal for any information or clarifications you may require.